Trump Bump Continues to Move

Good Morning Traders,
As of this writing 4:05 AM EST, here’s what we see:
US Dollar: Mar. USD is Down at 102.305.
Energies: February Crude is Down at 53.14.
Financials: The Mar 30 year bond is Up 8 ticks and trading at 150.30.
Indices: The March S&P 500 emini ES contract is 8 ticks Lower and trading at 2262.25.
Gold: The February gold contract is trading Up at 1174.00. Gold is 87 ticks Higher than its close.
Initial Conclusion

This is not a correlated market. The dollar is Down- and crude is Down- which is not normal but the 30 year bond is trading Up+. The Financials should always correlate with the US dollar such that if the dollar is lower then bonds should follow and vice-versa. The indices are Down- and Crude is trading Down- which is not correlated. Gold is trading Up which is correlated with the US dollar trading Down. I tend to believe that Gold has an inverse relationship with the US Dollar as when the US Dollar is down, Gold tends to rise in value and vice-versa. Think of it as a seesaw, when one is up the other should be down. I point this out to you to make you aware that when we don’t have a correlated market, it means something is wrong. As traders you need to be aware of this and proceed with your eyes wide open.
Asia traded mainly higher with the exception of the Nikkei exchange which traded lower. As of this writing Europe is trading mixed with half the exchanges higher and the other half lower.
Possible Challenges To Traders Today

– Challenger Job Cuts is out at 7:30 AM EST. This is major.
– ADP Non-Farm Employment Change is out at 8:15 AM. This is major.
– Unemployment Claims are out at 8:30 AM EST. This is major.
– Final Services PMI is out at 9:45 AM EST. This is not major.
– ISM Non-Manufacturing PMI is out at 10 AM EST. This is major.
– Natural Gas Storage is out at 10:30 AM EST. This is major.
– Crude Oil Inventories are out at 11 AM EST. This is major.

Treasuries
We’ve elected to switch gears a bit and show correlation between the 30 year bond (ZB) and The YM futures contract. The YM contract is the DJIA and the purpose is to show reverse correlation between the two instruments. Remember it’s liken to a seesaw, when up goes up the other should go down and vice versa.
Yesterday the ZB made it’s move at around 9 AM EST with no real economic news in sight. The ZB hit a low at around that time and the YM hit a high. If you look at the charts below ZB gave a signal at around 9 AM EST and the YM was moving lower at the same time. Look at the charts below and you’ll see a pattern for both assets. ZB hit a low at around 9 AM EST and the YM hit a high. These charts represent the newest version of Trend Following Trades and I’ve changed the timeframe to a 30 minute chart to display better. This represented a long opportunity on the 30 year bond, as a trader you could have netted about 30 plus ticks per contract on this trade. Each tick is worth $31.25. We added a Donchian Channel to the charts to show the signals more clearly. Charts Courtesy of Trend Following Trades built on a NinjaTrader platform Click on an image to enlarge it.
ZB – March, 2017 – 1/4/17
YM- March, 2017 – 1/4/17
Bias

Yesterday we gave the markets an upside bias as both the Bonds and the USD were trading lower yesterday morning and this is indicative of an upside move, hence our bias was to the upside. The Dow rose 60 points and the other indices rose as well. Today we aren’t dealing with a correlated and our bias is to the downside.
Could this change? Of Course. Remember anything can happen in a volatile market.
Commentary

It looks like the Trump Bump is continuing its move forward as this is what the pundits are calling the Trump rally. We suggested yesterday morning that the markets would move higher as the USD and the Bonds were both trading lower and this is indicative of an upside move. The markets didn’t disappoint as the Dow gained 60 points and the other indices rose as well and mind you that was with a hawkish Fed Meeting Minutes which stated that the Fed could raise interest rates sooner if warranted. What would make it warranted? An economy that is growing too fast, too soon and price hikes (inflation). If I were them at this point I wouldn’t be too concerned about the economy growing. We’ve been looking for growth for the past 8 years and thus far have seen a very tepid recovery. Producer Price Hikes (inflation)? I wouldn’t be too worried about that either as currently it’s a race to the bottom in terms of prices. Want proof? Go to any Walmart and compare….

Could this change? Of course, anything is possible in a volatile market. Just so you understand, Market Correlation is Market Direction. It attempts to determine the market direction for that day and it does so by using a unique set of tools. In fact TradersLog published an article on this subject that can be viewed at: http://www.traderslog.com/market-cor…ket-direction/
Many of my readers have been asking me to spell out the rules of Market Correlation. Recently Futures Magazine has elected to print a story on the subject matter and I must say I’m proud of the fact that they did as I’m Author of that article. I encourage all viewers to read that piece as it spells out the rules of market correlation and provides charts that show how it works in action. The article is entitled “How to Exploit and Profit from Market Correlation” and can be viewed at:
View article on Futures Mag
As a follow up to the first article on Market Correlation, I’ve produced a second segment on this subject matter and Futures Magazine has elected to publish it. It can be viewed at: View article on Futures Mag


Many subscribers have asked what is the best time of day to trade? A recent article published by Futures Magazine may shed some light on the subject: http://www.futuresmag.com/2015/01/15…orning-trading
As readers are probably aware I don’t trade equities. While we’re on this discussion, let’s define what is meant by a good earnings report. A company must exceed their prior quarter’s earnings per share and must provide excellent forward guidance. Any falloff between earning per share or forward guidance will not bode well for the company’s shares. This is one of the reasons I don’t trade equities but prefer futures. There is no earnings reports with futures and we don’t have to be concerned about lawsuits, scandals, malfeasance, etc. Anytime the market isn’t correlated it’s giving you a clue that something isn’t right and you should proceed with caution. Today our bias is to the downside. Could this change? Of course. In a volatile market anything can happen. We’ll have to monitor and see.
As I write this the crude markets are Lower and the futures are trading Lower. This is not normal. Crude and the markets are now reverse correlated such that when the markets are rising, crude drops and vice-versa. Yesterday February Crude dropped to a low of $52.15 a barrel. It would appear at the present time that crude has support at $51.26 a barrel and resistance at $54.32. This could change. We’ll have to monitor and see. Remember that crude is the only commodity that is reflected immediately at the gas pump. Please note that the front month for crude is now February. Three weeks ago and after two years OPEC finally decided to cut production but the price crude is still tame (as of this writing). What they haven’t figured out yet is that the more countries like Canada and the US produce their own crude (by whatever means) the more crude prices will fall. The move by OPEC to cut production in an attempt to pump up prices is liken to “too little, too late” as the world doesn’t need their oil as much as they used to. Power equipment that used to need oil (Grass Trimmers, Lawn Mowers, Autos) now run on battery power and Canada and the United States are producing more of their own crude. As an update to this the non-OPEC countries have come to an agreement to unilaterally cut production across the board and this has served to temporarily raise crude prices. We’ll have to see if and how long this lasts…
If trading crude today consider doing so after 11 AM EST when the inventory numbers are released and the markets gives us better direction.

Future Challenges

I must admit that I’m never amazed at what this new President-Elect will or will not do. Yesterday he appointed Omarosa Manigault as the new White House Press Liaison. If you recognize the name then you saw the 1st season of The Apprentice and it seems that more and more this President is going to run the White House like Corporate America. Omarosa was well hated during her tenure on the show but basically has somehow continued to serve under Trump even after she was fired from the series. As I’ve said previously, if anyone is expecting full disclosure and transparency under this new administration; forget it because we’re not going to see it. This administration will probably be the most secretive of modern times. Everyone that he’s appointed into a job are those that under ordinary circumstances hate those jobs. Carl Icahn as a Regulation chief. Carl Icahn hates regulation. His Secretary of the Treasury was also known as the Foreclosure King who foreclosed on a widowed senior because she was off by 27 cents on her payment. Each and every individual chosen is absolutely ruthless with no concept of mercy whatsoever but I guess that’s what Mr. Trump can relate to. After all he told his own daughter Ivanka “I’ll fire you like a dog if you fail”.
TradersLog has just published an article entitled “So You Think You Can Trust Your Elected Officials?” That article can be viewed at: http://www.traderslog.com/trust-elected-officials

Crude Oil Is Trading Lower

Crude oil is trading Lower and the markets are Lower. This is not normal. Crude typically makes 3 major moves (long or short) during the course of any trading day: around 9 AM EST, 11 AM EST and 2 PM EST when the crude market closes. If crude makes major moves around those time frames, then this would suggest normal trending, if not it would suggest that something is not quite right. As always watch and monitor your order flow as anything can happen in this market. This is why monitoring order flow in today’s market is crucial. We as traders are faced with numerous challenges that we didn’t have a few short years ago. High Frequency Trading is one of them. I’m not an advocate of scalping however in a market as volatile as this scalping is an alternative to trend trading. Remember that without knowledge of order flow we as traders are risking our hard earned capital and the Smart Money will have no issue taking it from us. Regardless of whatever platform you use for trading purposes you need to make sure it’s monitoring order flow. Sceeto does an excellent job at this. To fully capitalize on this newsletter it is important that the reader understand how the various market correlate. More on this in subsequent editions.

Nick Mastrandrea is the author of Market Tea Leaves. Market Tea Leaves is a daily newsletter that is dedicated to your trading success. We teach and discuss market correlation. Market Tea Leaves is published daily, pre-market in the United States and can be viewed at www.markettealeaves.com. Interested in Market Correlation? Want to learn more? Signup and receive Market Tea Leaves each day prior to market open. As a subscriber, you’ll also receive our daily Market Bias video that is only available to subscribers.